Econ601 Midterm

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  Midterm Exam Econ 601-002 Fall 2012 Total points: 100. Please answer all of the following questions. There are 4 multiple choice questions, each is worth 5 points.

Consider the following diagram where a perfectly competitive firm faces a price of $40.

Figure 1 1) Refer to Figure 1. The profit-maximizing output is A) 30. B) 54. C) 60. D) 67. E) 79. 2) Refer to Figure 1. At 67 units of output, profit is A) maximized and zero. B) maximized and negative. C) maximized and positive. D) not maximized, and zero. E) not maximized, and negative.

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3) (10 points) Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market is highly competitive, with boxes currently selling for $100 per thousand. Conigan's total and marginal cost curves are: TC = 3,000,000 + 0.001Q2 MC = 0.002Q where Q is measured in thousand box bundles per year. a. Calculate Conigan's profit maximizing quantity. Is the firm earning a profit? b. Analyze Conigan's position in terms of the shutdown condition. Should Conigan operate or shut down in the shortrun?

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Figure 2

4) Refer to Figure 2. At P = $80, the profit-maximizing output in the short run is A) 22. B) 34. C) 39. D) 50. E) 64. 5) Refer to Figure 2. If the firm expects $80 to be the long-run price, how many units of output will it plan to produce in the long run? A) 22 B) 34 C) 38 D) 50 E) 64

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6) (15 points) A country which does not tax cigarettes is considering the introduction of a $0.40 per pack tax. The economic advisors to the country estimate the supply and demand curves for cigarettes as: QD = 140,000-25,000P QS = 20,000 + 75,000P, where Q = daily sales in packs of cigarettes, and P = price per pack. The country has hired you to provide the following information regarding the cigarette market and the proposed tax. a. What are the equilibrium values in the current environment with no tax? b. What price and quantity would prevail after the imposition of the tax? What portion of the tax would be borne by buyers and sellers respectively? c. Calculate the deadweight loss from the tax. Could the tax be justified despite the deadweight loss? What tax revenue will be generated?

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7) (10 points) John Gardner is the city planner in a medium-sized southeastern city. The city is considering a proposal to award an exclusive contract to Clear Vision, Inc., a cable television carrier. Mr. Gardner has discovered that an economic planner hired a year before has generated the demand, marginal revenue, total cost and marginal cost functions given below: P = 28 - 0.0008Q MR = 28 - 0.0016Q TC = 120,000 + 0.0006Q2 MC = 0.0012Q, where Q = the number of cable subscribers and P = the price of basic monthly cable service. Conditions change very slowly in the community so that Mr. Gardner considers the cost and demand functions to be reasonably valid for present conditions. Mr. Gardner knows relatively little economics and has hired you to answer the questions listed below. a. What price and quantity would be expected if the firm is allowed to operate completely unregulated? b. Mr. Gardner has asked you to recommend a price and quantity that would be socially efficient. Recommend a price and quantity to Mr. Gardner using economic theory to justify your answer. c. Compare the economic efficiency implications of (a) and (b) above. Your answer need not include numerical calculations, but should include relevant diagrams to demonstrate deadweight loss.

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8) (15 points) Calloway Shirt Manufacturers sells knit shirts in two sub-markets. In one submarket, the shirts carry Calloway's popular label and breast logo and receive a substantial price premium. The other sub-market is targeted toward more price conscious consumers who buy the shirts without a breast logo, and the shirts are labeled with the name Archwood. The retail price of the shirts carrying the...
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